The Effect of Subjective Survival Probabilities on Retirement and Wealth

David E. Bloom, Harvard University
Michael Moore, Queen's University
Younghwan Song, Union College

We explore the proposition that expected longevity affects retirement decisions and wealth using micro data drawn from the Health and Retirement Survey for the United States, the English Longitudinal Study of Ageing, and the Survey of Health, Ageing and Retirement in Europe. We use data on individuals' subjective probability of survival to age 75 as a proxy for their prospective lifespan. Our estimates for the U.S. and U.K. indicate that increased subjective probabilities of survival result in increased household wealth among couples, with no effect on the length of the working life. These findings are consistent with the view that retirement decisions are driven by institutional constraints and incentives and that a longer expected lifespan leads to increased wealth. The SHARE results are less informative, mainly due to small sample sizes.